Labour’s motivation to ‘smash the gangs’ and get a grip of uncontrolled migration took a serious hit yesterday as the OBR confirmed net migration is the only thing stopping Britain from sliding into recession.
Research by Britain’s financial watchdog revealed net migration, which hit a record of 906,000 last year, is propping up the country’s minimal GDP growth.
Net migration forecasts have been upgraded since last year
ONS
This is because migrants added 500,000 people to the workforce last year, a significant boost, but most of which were in low skilled jobs meaning their contribution to the UK Treasury is relatively low.
The economy grew by 0.1 per cent in the last quarter, offering the Chancellor some political cover, though any tangible benefits for individuals were negated by population increase.
Net migration by nationality and visa shows an explosion in non-EU migrants and ‘dependents’
ONS
While Reeves can point to GDP growth as a sign of success no matter how small, critics say a more valuable measure would be GDP per capita (the country’s economic output per person).
They argue this is a more reliable measure of whether people are getting wealthier, something that is needed as council tax, water bills, energy bills, broadband bills, transport bills and electricity bills all increase, not to mention the cost groceries and other everyday items.
However, in its latest report accompanying Chancellor Reeves’s Spring Statement yesterday, the OBR found Britain’s GDP per person would not return to 2022 levels until 2026.
This means despite some growth of the economy, people will still not be as well off as they were in 2022 for at least another year, and that’s if world events do not transpire against Reeves.
This came as a blow to Britons struggling with the cost-of-living crisis, angering many who voted Labour after the party pledged to end the crisis after repeatedly calling it the ‘Tory cost of living crisis.’
It also came as a blow to those wanting to control immigration numbers. By removing the numbers being added to Britain’s workforce, Labour will lose its small GDP growth.
Reform UK leader Nigel Farage took issue with Reeves citing GDP growth and not GDP per capita yesterday in the Chamber, asking her: “Would the Chancellor agree that measuring growth to relative growth by GDP is not the most relevant number to our constituents?
“We’re living in an age of mass immigration and a rising population. It is GDP per capita surely which matters to our constituents and that has fallen consistently over the last two years and it is falling still.
“Should I tell people in my constituency they are getting poorer?”
Reeves slapped down Farage however, emphasising the long-term forecast over the short-term: “The OBR forecast GDP per capita will increase by 5.6 per cent during the course of this Parliament having fallen under the previous government.
She then delivered a pointed jab at the Reform UK leader’s commitment to his constituency.
“If he ever gets to Clacton, he can tell his constituents that,” Reeves said.
But despite Reeves’ attempts to paint a rosy long term picture, the Chancellor was forced to make further major fiscal decisions in her Spring Statement to fix the £14billion black hole the OBRfound her bombshell October budget to have created.
In that budget, Reeves raised taxes by £40billion to fund massive spending increases for the NHS, net zero and public sector pay rises, but it also relied on growth and subsequent tax receipts.
However, the punishing taxes sparked an exodus of wealth and business confidence as millionaires moved abroad, businesses laid off staff and thousands of rural businesses cancelled orders and growth plans to save for massive tax bills.
Global instability, fuelled by Trump’s trade war and Ukraine, also led to increased borrowing costs and stubbornly high inflation.
All of these factors led the OBR to find the government was overspending by £14billion, something Reeves had to counter yesterday with more welfare cuts, a tax evasion crackdown, major planning reforms and a slashing of the civil service.
The Chancellor says her tackling of tax avoidance is estimated to raise another £1billion, while cutting the health element of Universal Credit by 50 per cent and then freezing it will also raise cash.
Reeves also announced her intention to save £6.1billion from day-to-day Whitehall spending by 2029/30, slimming down civil service numbers by offering voluntary redundancy.
These measures restored the government’s £10billion fiscal headroom, but economists warned this is not enough and leaves the nation highly vulnerable to world events.
IFS Paul Johnson said Reeves had left herself ‘at the mercy of events’, calling her headroom a mere ‘sliver’.
The small headroom “… adds to uncertainty around policy. We can surely now expect six or seven months of speculation about what taxes might or might not be increased in the autumn,” he said.
LATEST FROM MEMBERSHIP:
OBR’s fiscal outlook March 2025 – ‘at a glance’
OBR
On growth and population forecasts, the OBR said: ‘Based on these latest ONS population projections, we now assume the adult population grows by 2.1million people over the next five years to reach 57.8million in 2029.
‘Annual adult population growth averages 0.8 per cent over the forecast period, in line with the October forecast.
‘In 2029, the adult population is half a million higher than in the October forecast, almost entirely reflecting the higher starting level.
‘It also revised up the level of real GDP by 0.8 per cent in mid-2024.
‘But real GDP growth largely stagnated over the second half of 2024 rather than continuing to grow, as we expected in the October forecast, meaning the level of output was broadly in line with our previous expectations by the end of 2024.
‘The net effect of these developments was that the measured level of productivity (output per hour worked) at the end of 2024 was 1.3 per cent lower than in the October forecast.’
Many commentators have said Reeves’ gloomy announcement yesterday was all about laying the groundwork for further taxes in October when her second budget will be delivered.
The Chancellor cited an array of excuses for sluggish growth yesterday, from Trump to Ukraine and even Liz Truss’s mini-budget, but one major event was absent from the list, the Chancellor’s own raising of taxes by £40billion.
Many critics were concerned by the Chancellor’s complete refusal to even mention her bombshell budget may have had something to do with Britain’s flatlining economy, despite the fact she inherited the fastest growing economy in the G7.
